About the author

Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan's Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

The amazing increase in Texas oil – output has doubled over the last three years and completely reversed a 22-year decline

The Energy Information Administration released new data on Friday for US oil production by state, and reported that “Saudi Texas” produced an average of 2.139 million barrels per day (bpd) in November, the highest monthly output since February 1987, more than 25 years ago (see top chart above). Texas oil production has increased by almost 30% in November from a year earlier, and by 71% over the last two years. Amazingly, oil production in the Lone Star State had doubled in just a little more than three years, from 1.066 million bpd per day in August 2008 to 2.139 bpd in November 2012. In just the last three years, the phenomenal increase in Texas oil output completely reversed the 22-year decline in the state’s oil production from 1987 to 2009.

Further, Texas oil output in November at an average of 2.139 million bpd was slightly greater than all of the US oil imports that month from the Persian Gulf countries (Saudi Arabia, Iraq, Kuwait and Qatar) of 2.103 million bpd. The last time Texas oil output matched Persian Gulf oil imports was back in April 1996, more than 16 years ago (see bottom chart).

Another way to put the staggering increase in Texas oil output into perspective – the Lone Star State’s output is almost three times the production in America’s No. 2 oil producing state – North Dakota, which produced 733,097 bpd in November (669,000 bpd in the Bakken). And the 654,000 bpd increase in Texas oil output over just the last 15 months, is like adding another Bakken formation to the US oil supply. Amazing. The one million bpd increase in Texas oil output over the last three years has to be one of the most significant increases in oil output ever recorded in the history of the US over that time period.

Updates (some more comparisons to put oil output in “Saudi Texas” into perspective):

1. If Texas was a separate country, it would be the 14th largest oil producing nation in the world, just slightly behind No. 13 Nigeria (2.39m bpd) and No. 12 Venezuela (2.47m bpd), and way ahead of No. 15 Angola (1.84m bpd), No. 16 Algeria (1.82m bpd) and No. 17 Norway (1.81m bpd).

2. Texas oil output has increased so dramatically over the last year relative to increases in North Dakota and other states, that for the first time since EIA started reporting state monthly oil production in 1981, the Lone Star State has been producing more than 31% of total US oil output for the last six months. Three years ago, Texas was producing less than 20% of the nation’s total crude oil output. But since the development of oil and gas production in the Eagle Ford Shale area of Texas, state oil output has doubled and the state’s share of domestic oil output has reached new all-time record high levels.

Discussion: (29 comments)

YOUR SOURCE IS LEFTIST/COMMUNIST JEAN LAHERRERE who has long ago forecast a looming oil shortage (laughable) and who wrote articles regarding the evils of cheap oil (moronic).

His March 2012 article in radical left-wing THE NATION regarding such subjects makes this committed socialist a laughable source. He resides in the lunatic fringe of the energy industry and enjoys no credibility.

Its is you who know nothing about this subject. Stop being a convenient stooge for socialist Laherrere.

The comment is true and accurate. Whether you want to believe it is your choice. I can tell you from first hand experience that our property produced over $700,000.00 USD in oil in 3 months and we have 8 wells on the property since last year alone. What and where is your experience aside from trying to discredit the author?

It is not flimsy at all. It is just math. If all that drilling activity cannot increase well yields there is no way for the EIA and the shale promoters to be right about future production levels or the economics of shale. Add to that the fact that the companies have already picked the low hanging fruit in the core areas and you have a big problem with reality that cannot be ignored for very long. Bakken gas production should start to fall off soon and Bakken oil will follow within a year.

This post is about Texas oil production, not the Bakken, so you’re off topic here…

I’m talking here about Texas, and the Eagle Ford Shale, the most profitable oil field in the world right now. Consider that:

In August, research firm IHS said drilling results in Eagle Ford appeared “to be superior to those of the Bakken” — 300 to 600 barrels-per-day for a peak month production average, compared with 150 to 300 barrels-per-day in North Dakota. At 300-600 bpd, that would be about $10m to $20m per year at $90 per barrel.

“Why are peak oil-ers like Jehovah’s Witnesses? Answer: When the definitive JW prediction of the ‘Day of Wrath’ failed in 1914, they did what false prophets have done in every generation: Shifted the goalposts (to 1975 in the case of JW’s—and wrong again). It’s what false prophets do to save face, enabling them to keep fleecing the inherently gullible. Peak-oilers do likewise.

Having written their headline-grabbing, money-making blockbusters predicting the imminent collapse of an oil-driven industrial world, peak-oilers like to maintain a ‘fluid’ approach to their predictions. In the case of oil, however, that’s becoming a tougher proposition, as their ignorance of energy, economics, and the sheer ingenuity of man is increasingly revealed in the looming global oil boom.”

This post is about Texas oil production, not the Bakken, so you’re off topic here…

Not at all. Promoters were talking up the Barnett and Haynesville formations, which are also in Texas. They were supposed to yield massive riches for shale gas producers but wound up destroying capital as they could not self finance and were selling product for less than the cost of production. After those failures people moved on to hyping ND, which is also having some serious issues even as gas and oil production is rising. Now some are citing Texas data once again even as they ignores the failures of previous predictions.

I’m talking here about Texas, and the Eagle Ford Shale, the most profitable oil field in the world right now. Consider that:

In August, research firm IHS said drilling results in Eagle Ford appeared “to be superior to those of the Bakken” — 300 to 600 barrels-per-day for a peak month production average, compared with 150 to 300 barrels-per-day in North Dakota. At 300-600 bpd, that would be about $10m to $20m per year at $90 per barrel.

You are talking about IPs where what we are interested in is the UR. And if you look at some of the presentations from the promoters you see them using a b factor that is greater than 1, which means that they have to use some arbitrary assumption to avoid an infinite recovery figure that would show just how inaccurate the reports are. The core areas in Eagle Ford should turn out to be better than the core areas of previous formations but that does not mean that the oil production process will be economic.

Is this the same BHP that had to write off its shale gas assets because it overestimated the profitability? If it was so wrong on shale gas what makes you so sure that BHP will be better on shale oil? After all, it is a mining company with little experience is shale oil and gas production. I suspect that for guidance it is looking to the very consultants that hyped up the sector and got it to buy the shale assets in the first place.

Not at all. When you spend billions on drilling thousands of new $10 million wells that have a decent IP you expect a nice increase. But that increase is only sustainable if the depletion rates are low enough to allow the drilling activity to be self financing. The Bakken data shows what the problem is. The depletion rate is massive because the new drilling has been unable to increase the per well productivity rates. That means that the Bakken production rate is about to decline unless the monthly drilling rate is increased even further to offset that depletion. While that is possible, it depends on the ability of the companies, who cannot finance their operations out of production activity, to get more debt or sell more equity. That cannot go on much longer.

And there is shale all over the world.

So? The rest of the world does not have access to loans that keep money losing companies in business. Exxon just exited Poland’s shale regions and other companies are quietly packing up and selling off assets to new players that care more about promotion than knowledge of the economics.

And Ford has a car on the market—the Fusion Hybrid—that gets 100 mpg, rated.

Ford makes most of its profits from tuck sales, not hybrids. And the last time I looked you were looking at around 7.2 litres per 100, substantially less than your 100 mpg claim. I suggest that you check your sources.

I think we cannot forget about “Peak Oil.”

You sure can because you don’t even understand what it is.

My question is whether oil prices can be sustained at above $80 a barrel. A lot of sovereign producers are going to have to cut production for along time to keep it here—or game the NYMEX.

Given the fact that central banks are flooding the world with money you will not have to worry about nominal prices for very long. Yes, prices should collapse once the real economy contracts again and everyone is worried about deflation. But such moves would only destroy the marginal producers, and all shale is marginal production, and shine a light on reality.

“Exxon just exited Poland’s shale regions and other companies are quietly packing up and selling off assets to new players that care more about promotion than knowledge of the economics.” — Vag

“HOUSTON—In a bid for more U.S. oil production, Exxon Mobil Corp. agreed to buy Denbury Resources Inc.’s assets in the Bakken Shale for $1.6 billion in cash and interests in two oil fields … The deal gives Exxon 50% more acreage in the Bakken Shale … “It is no surprise” that Exxon, the world’s largest publicly traded oil company, continues to “attempt to scale up its presence in tight oil and liquids rich unconventional plays,” said analysts with Simmons & Co. in a research note. The analysts added that after the purchase the Bakken will become Irving, Texas-based Exxon’s largest unconventional-oil-rich play after Canada’s oil sands … Last week Royal Dutch Shell PLC bought unconventional oil assets from Chesapeake Energy Corp. for $1.94 billion. .” — WSJ

So, the most profitable private oil and gas producers in the history of the world are increasing their stake in the Bakken. I guess that they must not understand the economics of oil and gas production? Don’t they subscribe to your newsletter?

So, the most profitable private oil and gas producers in the history of the world are increasing their stake in the Bakken. I guess that they must not understand the economics of oil and gas production? Don’t they subscribe to your newsletter?

Exxon admitted that its purchase of shale gas assets was a bad idea as it was losing its shirt on product that cost more to produce than it could be sold for. There is no doubt that Exxon has enough money from its conventional operations to finance money losing shale and that it benefits from purchases of shale gas that allow it to hide reserve depletions by using a 6:1 conversion factor.

The facts that matter are clearly shown in the SEC filings. There is little doubt that shale has been a destroyer of capital. Now you can argue that it will be different for shale oil than it was for shale gas but I am not big on standing on faith. I prefer to look at the data and that is telling me that all that money spent on drilling thousands of new wells is unable to offset the depletion problem. Until Exxon can deal with that data the conclusions remain unchanged.

“Exxon admitted that its purchase of shale gas assets was a bad idea …” — Vag

You keep shifting between shale gas and oil in order to confuse the issue.

No one is drilling for gas at this point, but that could change if prices continue to rise.

I would like you to explain the apparent paradox in your arguments. You keep saying that both shale gas and oil are unsustainble for two reasons 1) the price is not high enough to justify the investment and 2) the depletion rates “linear” and these wells playout to quickly to recover their costs and make a profit.

If, in fact, the depletion rates are as you claim extreme, then how is it that prices will remain low indefinetly? Why haven’t market prices adjusted in the face of a quickly deminishing surplus of both gas and oil? Are market players in on the scam as well?

You keep shifting between shale gas and oil in order to confuse the issue.

No one is drilling for gas at this point, but that could change if prices continue to rise.

The hype two or three years ago was all about shale gas. When some of us pointed out that the economics made no sense we were told that we had no clue what we were talking about and were shown nice production profiles that suggested that we were wrong. Now that we have been proven to have been correct the debate has shifted to shale liquids and the same people who were wrong about shale gas are now promoting shale oil. They tell us their great projections but we cannot see how their numbers make any more sense than the numbers for shale gas. The EURs are still too high and once you look at the all in costs you find that shale oil makes no sense in most formations. Outside of a few sweet spots in a few of the better formations there is no profit to be made from shale production.

I would like you to explain the apparent paradox in your arguments. You keep saying that both shale gas and oil are unsustainble for two reasons 1) the price is not high enough to justify the investment and 2) the depletion rates “linear” and these wells playout to quickly to recover their costs and make a profit.

Not quite my argument but close enough.

If, in fact, the depletion rates are as you claim extreme, then how is it that prices will remain low indefinetly? Why haven’t market prices adjusted in the face of a quickly deminishing surplus of both gas and oil? Are market players in on the scam as well?

You are missing my argument. Prices will rise but costs will always be higher because the energy return on energy invested is close enough to negative to be unable to cover all of the administrative and politically added costs. You have to look beyond the drilling costs and look to the administrative, regulatory, exploration, royalty, and other costs that are also material. Those are easy to cover when you can get 100 barrels of oil for each barrel of equivalent energy invested into a process but not capable of covering when each 1 barrel of oil of investment only yields 1.2 barrels of oil and you have to pay all kinds of other costs from the 0.2 barrel excess.

The important diagram that tells us the problem is this one. (If you don’t like the web site that it came from you can find exactly the same thing from other sites.) The data needed to create the diagram comes from this data. It shows that massive amounts of new drilling has been unable to increase the average well productivity. This shows two things. First, the depletion rates are huge and a big problem that is difficult to overcome. Second, the newer wells are not as productive as the drillers move outside of the core areas.

“The hype two or three years ago was all about shale gas … Now that we have been proven to have been correct …” — Vag

It seems that the only thing that you were “correct” about was that gas prices (which were at historic lows at that time) would not sustain investment on a “pure gas” basis. That was hardly a revelation since almost every analyst and industry insider on the planet was saying the same thing. The argument didn’t shift to oil and associated liquids, the industry did. And for precisely that reason.

Now, not even the New York Times – once an anxious abettor of Arthur Berman’s conspiracy theories – is biting:

“They have been through this before, the people of North Dakota, first in the ’60s, a decade after oil was discovered in the state. And then again in the late ’70s, when the boom was driven by rising oil prices. Monthly oil production, which peaked in 1984 at 4.6 million barrels, fell to half and then went sideways for nearly a quarter-century. … (Decidedly non-linear.)

As long as prices stay above $60 a barrel or so, oil will be a mainstay of the North Dakota economy for a generation or more. After drilling companies finish securing leased acreage, it will take 20 years to develop the 35,000 to 40,000 production wells needed to fully exploit the “thermally mature” part of the Bakken shale, an area about the size of West Virginia. Production from a typical Bakken well declines rapidly but on average produces modest amounts of oil for 45 years and earns a profit of $20 million. But as the volume of oil in the Bakken shale is still a moving target, and recovery techniques are increasingly sophisticated, some estimates put the life of the Bakken play, and the attendant upheaval it is causing in North Dakota, at upward of a hundred years. — The New York Times

So, let’s recap. You are attempting to quickly claim victory before natural gas prices rise to a level at which production is sustainable, ignoring the fact that the industry transitioned easily to exploit tight oil in the interim. And having no explanation for the paradox in your own arguments you have instead offered up “administrative, regulatory, exploration, royalty, and other costs” that will somehow always result in oil and gas production being unprofitable. Pathetic.

At the risk of sounding like a conspiracy theorist as well, let me suggest that it is interesting that companies that had set profitable hedges against future production then proceeded to drive the price of natural gas down to historically low levels before entering into a massive land acquisition phase. Hell, it’s almost as if they’ve planned it this way.

It seems that the only thing that you were “correct” about was that gas prices (which were at historic lows at that time) would not sustain investment on a “pure gas” basis. That was hardly a revelation since almost every analyst and industry insider on the planet was saying the same thing. The argument didn’t shift to oil and associated liquids, the industry did. And for precisely that reason.

The analysts were hyping the shale gas companies and people like Mark were saying that the production would keep rising even as prices were falling. They were wrong. End of story.

Now we have the same analysts and Mark giving us the same line. But they don’t look at the actual decline rates and have not done the proper analysis. The wells being drilled outside of the few core ares where shale makes sense are not self funding. That means that we have the same situation with oil than we had with gas. Now you could argue that we could get a nice pop in prices when the pipelines are built but by that time you will need new wells that are going to be even less productive than the ones that are drilled today. You can’t project the core area results on the entire area and expect to be right.

Production from a typical Bakken well declines rapidly but on average produces modest amounts of oil for 45 years and earns a profit of $20 million.

You show me a 40 year old horizontal well that requires fracking. As usual you are confused because you are talking about vertical wells drilled in the core ares where production makes sense. Those wells were cheap to drill and provided decent returns for years. But you can’t extend those results to the entire formation because there is no uniformity. A Bakken well in core area of a dolomite formation is not the same as a Bakken well in a shale formation.

So, let’s recap. You are attempting to quickly claim victory before natural gas prices rise to a level at which production is sustainable, ignoring the fact that the industry transitioned easily to exploit tight oil in the interim. And having no explanation for the paradox in your own arguments you have instead offered up “administrative, regulatory, exploration, royalty, and other costs” that will somehow always result in oil and gas production being unprofitable. Pathetic.

No. I ‘claim victory’ because all of that capital was destroyed on drilling shale gas wells that have no further production. The fact that the companies went after the easy gas first means that future wells will yield worse results. That means that the prices that we needed to have economic shale gas production will increase with time and if my analysis is correct will always stay higher than the market price for that gas once all costs are factored in.

At the risk of sounding like a conspiracy theorist as well, let me suggest that it is interesting that companies that had set profitable hedges against future production then proceeded to drive the price of natural gas down to historically low levels before entering into a massive land acquisition phase. Hell, it’s almost as if they’ve planned it this way.

What conspiracy? All the information is in the 10-Ks and available to anyone. The CEOs are very clear about the funding gaps and mention them on the conference calls. They have made it known that shale is not very profitable and that the way that they will make money is through being right about the decline rates.

And if you really believe the crap you wrote above I suggest that you are not exactly a rational investor. And as I said before, if prices of gas explode I will still be right because Mark’s prediction of cheap gas providing a stimulus to the economy will have been proven wrong as have most of his claims. As I said before, you can double prices and still have most of the industry go bankrupt. What you really need are $10 prices AND falling costs. But even if you got them you will still see a peak in the Bakken because of the depletion rates.

Utah is an interesting – and contrasting – case with a very gradual increase in production since about 2004. This has been due to the Covenant Oil Field, which is a conventional field discovered in 2004. Compare this conventional field with its gradual production increase to the parabolic rises in production in North Dakota and Texas. Obviously oil companies are more eager for the quicker payoffs in the shale plays, since wells there have high IP rates … otherwise they’d be doing more drilling in Utah. Also, it’s easier, in one sense, to drill the shale plays, because finding conventional traps is a higher-risk proposition with lots of dry wells. In a shale play, on the other hand, you simply drill to the right depth and you’re pretty much guaranteed to find at least *some* oil. There aren’t many dry holes in the Bakken and Eagle Ford shales.

Also, I may add, while the marginal cost of production may increase, advances in technology, or increases in productivity, will, at least, somewhat offset the higher cost.

Advances did not help the shale gas producers very much. They still wound up destroying all that capital and have had to move to sell themselves as oil ‘liquids’ plays. As I said before, the math does not favour Mark and the shale promoters because the depletion rates are too high and the cash flows are still negative.

Cost is what it all about. It’s quite simple. Oil people will produce oil from different sources if the price is high enough. Most of the oil that accounts for the increased production in Texas has a “production cost” of $75.00 per barrel. (BTW, highly scientific, goes back to my travel days of drinking beer with all types of “awl” folks in Midland/Odessa, and whether their remarks passed the “smell test”, i.e. my ability to read people.)

If competitors can produce more barrels at a price below $75.00 and long term indicates it will stay that way, Texas producers will have to cap their wells and walk away from the oil market.

If your outgo exceeds your income, then your upkeep will be your downfall.